What is an Assignment Fee in Real Estate Investing?

Real estate investing can be a lucrative venture, but it requires a lot of knowledge and research to be successful. One term that is commonly used in the industry is "assignment fee". If you're new to real estate investing, you may be wondering what this term means and how it works. In this blog post, we'll explain what an assignment fee is and how it works.

An assignment fee is a fee that an investor charges to assign their contract to another buyer. This fee is often referred to as a "wholesale fee". Essentially, the investor finds a property that they want to buy, signs a contract with the seller, and then assigns that contract to another buyer. The assignment fee is the profit that the investor makes by assigning the contract to the buyer.

For example, let's say an investor finds a property that is worth $100,000 and signs a contract with the seller for $70,000. The investor then finds a buyer who is willing to pay $80,000 for the property. The investor can assign the contract to the buyer and charge an assignment fee of $10,000. The buyer will pay the investor $80,000 and the investor will pay the seller $70,000, making a profit of $10,000.

Assignment fees are often used in wholesale real estate investing, where investors focus on finding distressed properties at a lower price and then selling them to other investors or rehabbers for a profit. This allows investors to make money without actually having to buy and hold the property themselves.

However, it's important to note that some states have regulations regarding assignment fees. For example, in some states, assignment fees cannot be higher than a certain percentage of the purchase price. It's important to do your research and understand the laws in your state before charging an assignment fee.

In conclusion, an assignment fee is a fee that real estate investors charge to assign their contract to another buyer. It's an effective way for investors to make money without actually having to buy and hold the property themselves. If you're interested in wholesaling real estate, understanding assignment fees is an important part of the process.